Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?

Seçil Hülya Danakol, Saul Estrin, Paul Reynolds and Utz Weitzel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There are conflicting predictions in the literature about the relationship between FDI and entrepreneurship. This paper explores how foreign direct investment (FDI) inflows, measured by lagged cross-border mergers and acquisitions (M&A), affect entrepreneurial entry in the host economy. We have constructed a micro panel of more than two thousand individuals in each of seventy countries, 2000-2009, linked to FDI by matching sectors. We find the relationship between FDI inflows and domestic entrepreneurship to be negative across all economies. This negative effect is much more pronounced in developed than developing economies and is also identified within industries, notably in manufacturing. Policies to encourage FDI via M&A need to consider how to counteract the prevailing adverse effect on domestic entrepreneurship.

Keywords: foreign direct investment; entrepreneurship; new firm entry; spillovers (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Date: 2017-03-01
New Economics Papers: this item is included in nep-cse, nep-int and nep-sbm
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Citations: View citations in EconPapers (22)

Published in Small Business Economics, 1, March, 2017, 48(3), pp. 599-612. ISSN: 0921-898X

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http://eprints.lse.ac.uk/68118/ Open access version. (application/pdf)

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Journal Article: Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:68118

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